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The S&P 500 closed above 5,200 for the first time in history las week.
The driving force was – no surprise – technology, specifically the so-called “Magnificent Seven” that includes Apple, Amazon, Alphabet, Microsoft, Meta Platforms, Nvidia, and Tesla. During the 12 months to March 21, the S&P 500 Information Technology Index gained 51%. This year alone it’s ahead by 13.4%.
Realistically, we should be calling this group the Magnificent Six. Tesla shouldn’t make the cut. The stock is currently trading at about the same level as a year ago while the rest have posted strong gains. But Six sounds much less grandiose, so we’re stuck with Seven until someone coins a new term. That will probably happen soon; it wasn’t long ago that these stocks went by the acronym FAANG+.
Canada doesn’t have a Magnificent Seven. We don’t even have a Magnificent One. Ottawa-based Shopify Inc. (TSX: SHOP) has a market cap of US$112 billion. That makes it a flea compared with the Magnificent Seven, which have market caps ranging from US$616 billion (Tesla) to US$3 trillion (Microsoft).
But, although we’re small by comparison, Canada’s information technology sector is performing well. Over the past year, the S&P/TSX Capped Information Technology Index has gained 44%. Year-to-date it’s up 6.3%.
Shopify is obviously one of the leaders, with a year-to-date gain of 18.37% after more than doubling in price in 2023. We first recommended it in my Internet Wealth Builder newsletter in February 2018 at a split-adjusted price of $2.83. It closed recently at $109.69.
Other players that are worth looking it include Celestica Inc. (TSX: CLS), which led the TSX advancers last year with a gain of 154%. It’s still hot, up 53% so far in 2024.
Toronto-based, Celestica has a market cap of $6.2 billion. The company, a spinoff from IBM, provides hardware and supply chain solutions to some of the world’s largest businesses.
On Jan. 29, the company released fourth-quarter and year-end results that were better than expected. Revenue for the quarter was $2.14 billion, up 5% compared with last year. Earnings per share (EPS) was $0.70, up from $0.35 in the same quarter of 2022. Adjusted EPS was $0.76.
For the full year, revenue was $7.96 billion compared with $7.25 billion in 2022. EPS was $2.03, up from $1.18 in the prior year.
“The strong momentum we had in 2023 is continuing into 2024 and we remain confident in our long-term strategy,” said CEO Rob Mionis. The company is forecasting first-quarter revenue of $2.025-$2.175 million and adjusted EPS of $0.67-$0.77.
Celestica was recommended in The Internet Wealth Builder in November last year at $38.46. The stock closed recently at $59.40, so we have a gain of 54% so far. It continues to be rated as a Buy.
Another high-performance Canadian tech company is Constellation Software Inc. (TSX: CSU). It was up 55% in 2023 and has added another 14.7% so far this year.
Constellation is a large tech company by Canadian standards with a market cap of about $79 billion. It was founded in 1995 to assemble a portfolio of vertical market software companies that had the potential to be leaders in their particular area of expertise. The company has grown rapidly through a combination of acquisitions and organic growth and continues to apply the same formula.
At the time of writing, year-end results were not available, but third-quarter figures showed growth isn’t slowing. The Toronto-based company reported revenue of $2.1 billion, up 23% from $1.7 billion in the third quarter of 2022. Note that the company reports in U.S. dollars.
Net income attributable to common shareholders increased 30%, to $177 million ($8.36 on a diluted share basis) from $136 million ($6.42 per share) in 2022. The company completed several acquisitions in the quarter for a total cost of $187 million.
For the first nine months of 2023 total revenue was $6.1 billion, an increase of 27% compared with $4.8 billion for the comparable period in 2022. The company said the increase was primarily due to growth from acquisitions.
The stock pays a quarterly dividend of US$1.00. Given the high share price, the yield is negligible. The stock closed recnetly $3,769.01.
Other profitable Canadian tech stocks recommended in the Internet Wealth Builder are CGI Group (TSX: GIB.A), which is up 12.3% this year, and Descartes Systems Inc. (TSX: DSG), which is ahead 13.4%.
Bottom line: The Magnificent Seven may get all the attention, but CanTech offers strong profit potential as well.
Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investor newsletters, which are available through the Building Wealth website.
Follow Gordon Pape on X at X.com/GPUpdates and on Facebook at www.facebook.com/GordonPapeMoney.
Notes and Disclaimer
Content © 2024 by Gordon Pape Enterprises. All rights reserved. Reprinted with permission. The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions.
Image: iStock.com/JohnCarnemolla
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